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Bank of England set to further delay sales of government bonds until markets calm

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The Bank of England will postpone the sale of billions of pounds of government bonds in a bid to increase stability in the gold market following the UK’s ‘mini’ budget failure.

BoE already delayed the start It sold 838 billion pounds of heifers purchased under the quantitative easing program from 6 October to the end of this month. Bowing to investor pressure, the market is expected to pause further until it calms down.

The Financial Times has learned that bank officials have come to that view after judging that the unmarried market has suffered “very badly” in recent weeks, in a view endorsed by the Financial Times. .

Investors have also warned that the central bank’s plans to start selling bonds in its portfolio at the end of this month could destabilize markets.

The Bank of England said on Tuesday it had yet to make a decision on postponing the bond sale.

nevertheless 30 year yield It fell to 4.45% on Tuesday from a recent high of over 5%, well above its pre-earnings level of 3.75%.

“The market is so fragile at the moment that I am not sure it would be wise for them to act quickly,” said Jim Reavis, chief investment officer of public fixed income at M&G Investments.

Sandra Holdsworth, head of UK rates at Aegon Asset Management, said: “When we had to support the market recently, we were unsure if we could move forward without risking further problems. not.”

BoE shift set to hold on to start unwinding UK QE — A process initiated by other central banks To reduce its inflated balance sheet and increase its freedom to operate in future financial crises or financial crises.

Bank of England officials have argued that inflation can be curbed by changing interest rates rather than the so-called quantitative tightening, which is the opposite of quantitative easing. At the pace set by the bank, it would take him over a decade to complete the QT.

In Washington on Saturday, BoE Governor Andrew Bailey confirmed that the MPC will try to use bank interest rates rather than asset sales as its main weapon in its fight against inflation.

“The MPC is not currently using its holdings as an active instrument of monetary policy.” he told a central bank audience“The intention was to gradually and predictably draw down QE stocks in a way that is not tied to potential economic conditions,” he added.

Delaying bond sales does not require a vote from the bank’s monetary policy committee. In making its last postponement last month, the bank determined that turbulent market conditions met the “high bar” it set for changing the timing without a vote.

The BoE still hopes to get rid of £80bn of assets in the first year of depleting its balance sheet through a combination of asset maturities and aggressive sales.

The Bank of Japan is likely to stick to its policy of allowing maturing bonds to mature without being reinvested in other securities. That could hurt and complicate rate hike plans, said Antoine Bouvet, rates strategist at ING.

“We don’t want to undermine the only proven tool for lowering inflation, the possibility of further rate hikes,” Bouvet said. “I don’t know if this market can also accommodate BoE selling.”

Some analysts argue that the BOE may need to tweak its plans if it decides to start quantitative tightening.

Daniela Russell, head of UK rates strategy at HSBC, said the central bank should focus on short-term bonds rather than selling roughly equal amounts of short-, medium- and long-term bonds. This allows for a long-term exit from the gold leaf market. chaotic selling focus It caused a liquidity crisis for pension funds, but “continues to recover,” she added.

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